Going Exclusive
By Mark Kalaygian
Published: May 1, 2012
A focus on stocking only products that are unique to the independent pet specialty channel is not necessarily the right choice for all mom-and-pop pet shops.



Differentiation. For decades, it has been the mantra of small, mom-and-pop pet shops as they face increasing competition from their big-box counterparts and other retail channels. And more times than not, it has served them well.

Of course, conventional wisdom tells us that independent pet retailers must set themselves apart in order to effectively compete with bigger competitors down the street, but what exactly should this entail? Not surprisingly, for many pet store operators it mostly means building a product mix that does not overlap with what can be found on the shelves of Petco or PetSmart, a local grocery store or Walmart. After all, who wants to compete on a playing field that is clearly skewed by economies of scale and a level of convenience that the small independent simply cannot match?

No, it seems easier to focus on products and brands that cannot be price shopped from one retail outlet to the next or simply picked up during the course of a weekly grocery shopping trip. However, depending on product exclusivity as the sole point of differentiation between an independent pet shop and its competitors is a strategy that is at best a half measure, and at worst, counterproductive to the retailer’s ultimate goal of driving sales.

“It’s wrong to only counter-program [your product selection] with vendors that your competitors don’t carry,” says Jim Alvord, a former executive at Petco and the owner of JBA Marketing, Inc., in Escondido, Calif. “Ultimately, you’ll end up putting yourself out on an island with an assortment of exclusive products that no one wants to buy. It’s suicide to try to avoid the best-selling products all together.”

According to Alvord, small independent operators are not the only type of pet specialty retailers that are focused on product exclusivity. He says that his former employer, Petco, has increasingly taken this approach as competition has heated up. But just like independent pet stores can end up cutting off their nose to spite their face by focusing too heavily on exclusivity, so too can the big-box stores.

To illustrate this point, Alvord recounts how one prideful Petco buyer almost passed up a great selling opportunity because his vision was clouded by exclusivity, or lack thereof.

“That Loofa Dog is a phenomenon. It sells everywhere, at various prices and with all kinds of variations,” says Alvord. “When I first became aware of it, I grabbed our toy buyer and said, ‘When is this coming into our stores?’ He responded, ‘Oh, we’re not buying that, it’s in PetSmart.’”

After pointing out to the toy buyer that not only was PetSmart selling Loofa Dogs, it was selling tons of them, Alvord quickly set up a meeting with a representative for Multipet International, the manufacturer of the best-selling toy. “Of course, there were certain variations that we couldn’t buy because they were exclusive to PetSmart, which had supported them from the beginning, but there were plenty of others that we could choose from,” says Alvord. “And later, we even developed our on exclusive variations. Ultimately, we were able to coexist quite peacefully with all of the other retailers that carried the Loofa Dog.”

According to Leslie Yellin, executive vice president, Multipet International, there is a good reason why a variety of retail outlets can all benefit from selling the same popular toy. “In [the toy] category, there is no price shopping,” she says. “Nobody will go into a pet store and say, ‘Oh my gosh, I saw this toy at a mass retailer for $2 less.’ It just doesn’t work that way.”

Still, Yellin says that her company is sensitive to the needs of independents that want their product mix to be differentiated from mass and big-box competitors. “With a lot of our toys, if we know that there is sensitivity to [competition], we will actually produce a variation,” she says. “That way, the independents can feel comfortable that it’s not the same exact item.”

In many cases it makes sense for independent pet specialty retailers to pay close attention to products and brands that are specifically developed for their channel. In fact, what differentiates these items from those sold in other channels often extends beyond the superficial.

“It’s not just a different brand on the product and a different color packaging, the product itself is differentiated,” says Rob Morgan, vice president of sales for Worldwise, a pet product manufacturer that recently developed Petlinks, a line of products specifically for the pet specialty channel, after years of supplying mass retailers with its Smarty Cat and Pooch Planet lines. “So there are things that you will find in our pet specialty products that you won’t find in the mass channel products, and vice versa.

“For example, on the pet specialty side, because they have more space devoted to pet products, they can tell more of a story. In our case, we have a system where different products are tailored to fulfill different needs. At the point of sale, pet stores might carve out a four-foot section to tell that story about the individual products in a more comprehensive way. So when a consumer stands in front of the section and tries to figure out what type of product they want to buy for their pet, they can actually shop it in a way that makes sense. A mass retailer might not have as much space to tell that story.”

But lest we forget, Petco and PetSmart are pet specialty retailers too, with even more space than most of their independent brethren to tell whatever stories they want. However, the mom-and-pops still have a formidable weapon to help them stay one step ahead of the big-boxes: flexibility.

“If you can identify an up-and-coming vendor that isn’t looking for Petco or PetSmart yet, you can get in on the ground level,” says Larry Mutschler, owner of Concord Pet Foods and Supplies, which operates 21 stores in Delaware, Maryland, Pennsylvania and New Jersey. “And then [when they move to the big-boxes], you move on. That’s the advantage we have, we can change tomorrow.”

Alvord agrees that getting in on the ground floor with vendors is a great strategy for independent retailers. “I would go to vendors and say, ‘Start with me and I will give you front-and-center positioning in my store,’” he says. “Then they can use my selling history to sell the big guys on the product, as long as they get me onto the next thing more quickly. Then I can tell my customers, ‘You saw it here first.’ It will give you a reputation for having cutting-edge merchandise.”


Food for Thought
There is probably no area where product differentiation between mass, big-box and independent brands is more profound than it is in the food category. Yet, even here many independents can still find a way to make some overlap with other channels work. This has become increasingly important as big-box stores and mass retailers have begun incorporating more and more food brands that were once the exclusive domain of independent pet specialty retailers.

“With the proper shelf space and promotions, you can build [independent specialty] lines and still have room for the ‘grocery’ lines,” says Mutschler. “If it’s a grocery item, I just want to make sure I’m going to be competitive. For example, if it’s a can of Fancy Feast that they’re selling for $.40, I want to be able to sell it for $.42 or $.43, not $.50 or $.60.

“When it comes to the grocery brands, you work off of very low margins, obviously, but you hope that you can bring the customers in and get them to buy a rawhide or a toy, or something of that nature.”

Mutschler credits his distributors for helping him achieve the pricing that he feels is necessary to carry these brands.  “They are constantly promoting [food brands] through distributors to help independent retailers,” he says. “One of the major lines is on sale almost every month.”

The many open-house events offered by pet product distributors can be particularly valuable in helping independents stay price competitive. “You need to make sure you hit your local distributor shows,” says Mutschler. “With the discounts that vendors offer at these shows, and the number of shows that are out there, you can almost run your whole year at a discount. Use it to your advantage.

Although he takes a decidedly different approach to the product mix in his food aisles, Jay P. Margedant, president of Red Bandanna Pet Food, which operates 14 stores in Atlanta, agrees that shopping distributor specials can be extremely valuable in helping independent pet stores be price competitive. “If you do it smart, you can be very competitive with the big-box stores,” he says.

 

Unlike Mutschler, Margedant has chosen to eschew many of the food brands that can be found in mass and big-box pet stores—not because of concerns about pricing, but because he does not feel that those foods fit his carefully constructed brand. “When Red Bandanna came into Atlanta 14 years ago, we came with one idea and one idea alone: natural pet food for the life of your pets,” he says. “I would never consider [many of the mass and grocery] brands because they don’t meet our criteria for what we want to sell to our customers.”

 

Margedant says that from the beginning, he understood that there would be limitations in what he could do with his small-format stores, which typically have a footprint of around 1,200 square feet. “We’ve always had it in our minds that there are five types of pet food [customer], and we’re only going to be able satisfy maybe three of them, at most,” he says. “We learned a long time ago that there is no way we’re going to be able to satisfy everybody, so we just concentrate on being the best at what we do.”

 

While Concord also carries a strong mix of independent pet specialty brands Mutschler says his ability to carry a wider variety of brands in his stores, most of which have a footprint of 3,500 square feet and upward, is invaluable in driving traffic and creating opportunities to convert customers to premium products that carry better margins.

“You’re not really going to make a lot from your Fancy Feast, Friskies or Dog Chow, but you’re going to get customers in the door,” he says. “There are many times when we’re selling these brands for one or two pennies above cost, but if you can get the customer to try out a bag of dry food from one of your [exclusive] lines, that’s how you’re going to be successful.”

However, inspiring customers to try premium products takes some finesse. “The key is having someone at the door who can greet customers and listen to their problems,” says Mutschler.

That is a point on which Mutschler and Margedant agree. Both feel that the real point of differentiation that independent pet specialty retailers—whether they are single-store operations or 21-store chains—should focus on is their ability to deliver a high level of service. 

“People understand the value of good customer service and information,” says Margedant. “As an independent, if I am not providing that level of service, then padding that extra dollar onto my margin out of necessity is going to be combated against by the customers. But if they understand the value, and we’re conveying that value honestly, they’ll stay with us.”